Insurance Blog

Government shutdown insurance?

It's been said that where there's a risk, there's an insurance company willing to cover it.

But what if the risk in question involves a U.S. government shutdown and/or a full federal default?

While this is not exactly uncharted territory for commercial underwriters, many tools of their trade, such as contingent business interruption and political risk coverage, may not stretch far enough to protect most client companies, according to insurance lawyer Mark Garbowski of Anderson Kill law firm in New York.

Writing in an Insurance Journal op-ed, Garbowski says business peril policies typically address foreseeable risks, such as storm or earthquake-related damage or breaks in a company's supply chain.

"By their nature such policies tend to be specifically written for particular risks, so there is very limited precedent and experience (with a government shutdown)," he says.

The more directly dependent a company is on the government, the more likely their business policy may carry redeemable contingent business interruption coverage in the event of an unforeseen disruption or even the cancelation of a key government project. In fact, some federal contractors may be required to do so. Garbowski says the terms of the policy would be key to any successful claim.

Other types of businesses that feel the ripple effect from the shutdown, such as hotels and restaurants near the closed national parks, face yet another hurdle, as their business interruption policies are normally triggered by property damage to the business or its supply chain.

"In the current impasse, the government is not shutting down operations because of a physical loss but because of a political stand-off, an occurrence not covered by most business income provisions," he says. "That is unlikely to be applicable here. Still, it is worth checking coverage, as policies vary."

As for those political risk policies, Garbowski says they're usually designed to protect U.S. companies abroad from the financial impact of political unrest, such as seizure of assets, limits on currency conversion, and even violence. In fact, the U.S. government sells such coverage to U.S. companies doing business in 150 countries worldwide.

But he cautions government contractors against rushing out to purchase this type of policy during our current government time-out.

"Such policies usually require a waiting period, often as long as 90 days, before coverage is triggered. If the government action or political situation does not last that long, there will often be no coverage," he says.

In the event of a federal debt default, Garbowski says a company's best bet, "however remote," would be to use a credit default swap to collect from Uncle Sam.

But like Garbowski, I'm not getting that picture either.

Follow me on Twitter: @omnisaurus

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Jay MacDonald is a Bankrate contributing editor and co-author of "Future Millionaires' Guidebook," an e-book by Bankrate editors and reporters.

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